<p>
	A Protective Collar is an option strategy that involves both the underlying stock and two option contracts. The trader buys (or already owns) a stock, then buys an out-the-money put option and sells an out-the-money call option.  It is similar to the covered call strategy but with the purchase of an additional put option. This strategy is employed if the trader is writing covered calls but wishes to protect himself from an unexpected drop in the price of the underlying security. As a tradeoff for loss-protection, the profit is limited compared with the Covered Call strategy.
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<pre class="python"># Protective Collar
price = np.arange(700,950,1)
# assume at time 0, the price of the undelying stock is 830
k_otm_put = 800 # the strike price of OTM put
k_otm_call = 860 # the strike price of OTM call
premium_otm_put = 6 # the premium of OTM put
premium_otm_call = 2 # the premium of OTM call
# payoff for the long put position
payoff_long_put = [max(-premium_otm_put, k_otm_put-i-premium_otm_put) for i in price]
# payoff for the short call position
payoff_short_call = [min(premium_otm_call, -(i-k_otm_call-premium_otm_call)) for i in price]
# payoff for the underlying stock
payoff_stock = price - 830
# payoff for the Protective Collar Strategy
payoff = np.sum([payoff_long_put,payoff_short_call,payoff_stock], axis=0)
plt.figure(figsize=(20,15))
plt.plot(price, payoff_long_put, label = 'Long Put',linestyle='--')
plt.plot(price, payoff_short_call, label = 'Short Call',linestyle='--')
plt.plot(price, payoff_stock, label = 'Underlying Stock',linestyle='--')
plt.plot(price, payoff, label = 'Protective Collar',c='black')
plt.legend(fontsize = 20)
plt.xlabel('Stock Price at Expiry',fontsize = 15)
plt.ylabel('payoff',fontsize = 15)
plt.title('Protective Collar Strategy - Payoff',fontsize = 20)
plt.grid(True)
</pre>
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<img class="img-responsive" src="https://cdn.quantconnect.com/tutorials/i/Tutorial08-protective-collar.png" alt="protective collar strategy payoff"/>
<p>
	According to the payoff plot, the maximum profit is the strike price of short call minus the purchase price of the underlying asset plus the net credit from the premium. It occurs when the underlying price is beyond the strike price of the short call option. The maximum loss is the purchase price of the underlying asset minus the strike price of the long put minus the net credit from the premium. It occurs when the stock price is below the strike price of the long put. It is a strategy with both limited risk and limited profit.
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